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Lessons From a Trader

I learned about trading but I also learned a lot about myself and what I was good at, what I was horrible at, and what I was psychotic at — things that had nothing to do with day trading. Day trading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day you think about how much money you made.

It’s the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly. I am now unemployable in every other way.

Here’s what I learned. All of these lessons I will certainly use today, and many years after will stop trading.

You can’t predict the future.

Everyone thinks they can. But they can’t. This applies not just to trading but everything. You could be in relationship or married for 11 years and the next thing you know — you are splitting or divorced and you would not have predicted that.

You could be healthy all your life and drink your vegetables and exercise and reduce stress and a year later you could be dead from cancer. Trust me when I say- much less stress, if you let go of trying to predict the future. You can always seek to increase the odds in your favour — if I don’t jump off bridges, for instance, it’s more likely I’ll be alive a year from now — but certainly a path to unhappiness is thinking the future can be predicted and controlled.

Hope is not a strategy.

If you get to the point where you “hope” you don’t get ruined, then you did something wrong beforehand. For instance, if you plan a wedding outside and you don’t have a backup plan in case it rains, then you probably miss-planned you’re wedding, unless you are getting married in a desert. “Hoping” is not a bad thing.

I hope that every day my life goes perfectly. But if hoping is the only thing I’m relying on, then it means I didn’t really look at all the possible outcomes of something that was important to me.

Uncertainty is your best friend.

100% of opportunities in life are created because people are uncertain about almost everything in their lives. We are constantly trying to close the enormous gap between the things we are certain about and the things we are uncertain about and almost every invention, product, Internet service, book, whatever has been created to help us closes that gap. Sometimes this is hard.

If your girlfriend or wife betrays and leaves you, you often feel like crawling on the floor and burning all the self-help books. They all lied. It’s hard to feel “in the now” or to “positive think” when life feels like it’s over. I’ve tried. It’s really hard. But at the very very least you can say…”help me”. You can say it to your close friends. You can say it to something inside of yourself. “Help me” is the most powerful, and most forgotten, prayer.

Taking risks versus reducing risk.

Some people take too many risks and they go bankrupt. This happened to me. And sometimes people are too cautious and don’t take enough risks. When I first started day trading I was so afraid of risk that if I had a small profit, I’d end the trade.

But then I would take big losses and that would wipe out all my profits. The key is that you can take larger and larger risks if you work on better and better ways to deal with those risks. For instance, I might be able to risk marrying someone if I know she is not a hard-core drug addict who regularly betrays the people she is close to.

I can risk driving without a license if I always stay below the speed limit (I know this is a stupid risk, but still…). Once you have a method of reducing risks, it’s easier to make trades or decisions about anything.

Diversification.

Often I get emails, “I really want ONE job but they don’t seem to want me and now I’m miserable. How can I get that job?” Well… you can’t. And you’re going to be unhappy. You can’t wish yourself a job. When I wanted to get a girlfriend I went on lots of dates. My friend approach was even smarter — she wouldn’t waste time with dinners. She would only go to tea with guys. Within the first 20 seconds you know if you are attracted. So keep it to a tea.

Say no.

In trading, if something is not working out, even if your heart wants it to work out, you have to say “No” and cut your losses. If a business relationship is not working out, don’t put more energy and time into it. We think because we’ve already put time and energy (or money) into something that we have to stick with it.

But this is just a mental bullshit. Say no to it. You have to decide every moment if this is the situation you want to be in. Just because you were in the situation a moment ago, or yesterday, or for 10 years, doesn’t mean the situation is right for you anymore.

Health.

Trading pulls everything out of you. It sucks the soul out of your body, blends it up, and then explodes. It doesn’t turn into a nice smoothie. It explodes. So you have to take care of yourself. If you don’t sleep enough, if you don’t eat well, exercise, be around positive people, be grateful for what you have blah blah blah you will lose all of your money and go bankrupt. And obviously, this applies to everything else in life. Every day, what small thing can you do to become a slightly better you?

The reason we get so attracted to “safe” jobs is that the pain is more subtle and sneaks up on us. The only way to survive is to laugh. There’s that saying: “men make plans but god laughs.” Well, you might as well be on the same side as god.

“This is crazy” means you’re crazy.

I’ve seen it a million times. Guy makes a trade. The market goes against him. He says “this is crazy” and puts more money into the trade. And then he loses all his money and goes crazy. The market is never crazy. The world is never crazy.

It doesn’t matter if a trade (or a day, or a life) is good or bad.

Good and bad days happen. But life is about a billion little moments that add up to all the things around you. If you let one of those moments have too much control then you are bound to be mostly miserable.

It’s never about the money, game maybe

I get emails like, “can you show me how to day trade?” “NO!” I know 100 day traders and only two that won’t go bankrupt. So what makes anyone think they will have an edge? How many people listen to me? About 0.

How come? Because people are sick of their lives, their relationships, their jobs, and all the lies that have been told to them ever since they learned how to walk.

They want freedom from the BS. I get it. Trading is the dream. You can make enough money to not care. To do it from anywhere. To be happy. It won’t work. But people don’t want to believe it. Most people think they have that one special something that will make it work for them. And it’s true — they do have that one special something.

But you can’t get there by day trading first. You can skip right to the being happy part. You can skip right to being free. But we never learned that. OK, go do it. Then cry about it. Then get scared. Then curse. Then cry more. None of that will make you happy. Then read this part again. Work… you have to put relentless everyday work into this craft.

And trust me when I say, lots and lots of it…

Remember, edges are found in the places between the battleground among buyers and sellers. Your task as a trader is to find those places and wait to see who wins and who loses.

Mature understanding of and respect of risk is the hallmark of the best traders. They know if you don’t keep an eye of risk, it will set its eye on you.

Ruin is the risk you should be concerned with the most. It can come like a thief in the night and steal everything if you’re not watching carefully.

Don’t spend all your time admiring the fancy tools and fools in the magazines or scam websites. First learn how to use the basic ones well. It’s not the size of your tools that counts but how you use them.

Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated method every time.

Trading with poor methods is like learning to juggle while standing in a rowboat during the storm. Sure, it can be done, but it is much easier to juggle when one is standing on a solid ground.

Trading is not a sprint; it is boxing. The market will beat you up, screw with your head, and do anything it can to defeat you. But when the bell sounds at the end of the twelfth round, you must be standing in the ring in order to win.

Your job as a trader is to wait for the best opportunities. Money is made stalking and sitting not being active & forcing a new trade each day.

Just like a Rocky! Trading Rocky Balboa!

In order to make serious money in the markets, you must be able to "financially survive".

In other words, in order to “live to trade again”, you must learn to cut losses short. Losses are part of the trading equation.

This can be very difficult because admitting that the wrong trade was executed (or the right trade, but at the wrong time) is admitting that you were wrong.

It is human nature to not like being wrong.

You enter a trade, three factors must be crystal clear in your mind:

where to get in

where to take profits

where to bail out

Daydreaming about profits will not make you rich. You must decide in advance where you’ll take your winnings off the table or cut and run if the market turns against you. It’s human nature when you lose money quickly you want to make it back twice as quick. Slow down, keep focused, and stick to your strategy.

If you’re a trader who has a hard time taking a loss, or waiting for the right entry point, or prematurely exiting winning trades at the first sign of heat, or putting on too much size, or too little…..then those are the issues that need to be addressed. If you don’t address the right issues you’ll never make it in trading. Period.

I get messages asking my opinion on various indicators, software, chat rooms, etc. Over and over I see traders continue to add stuff to their charts but not trade any better. It’s natural to think that more information will lead to better trading decisions. I’m not against more information per se, but if you’re someone who struggles taking a loss, waiting for the right entry point, prematurely exiting a trade, or something else, you have to ask yourself why is it that more information has not helped?

Even with more information you’ll still experience uncertainty. I’m not suggesting stopping your search for more information, I am suggesting that you need something beyond ‘more information’. What you need is a type of confidence that I refer to as real confidence.

I define real confidence as resilience in the face of discomfort. This is different than how most traders describe ‘confidence. Most traders will feel good when things are going well and feel down when things go badly. A situation where confidence is closely tied to P&L.

Everyone knows that trading involves various forms of discomfort – losses, waiting, etc. And it’s the ability to tolerate discomfort – resilience – that separates successful traders from the rest.

If you believe you have an edge but are unable to execute on that edge, you have two viable options.

You can decide to give up trading, or you can address the issue directly. Getting new software, indicators, joining another chat room is not going to do it for you. You’re welcome to try….but the trading road is littered with people like this. Although you may not want to admit it to yourself, you know I’m right.

A trader needs to be very honest with him or herself. Believe it or not, once you have an edge, self-honesty is the first step to making money in the market.

And one more thing… DO NOT listen to total BS that is coming from so called pro-lunatics-retail-traders. Under no circumstances!

One example:

The guide to understanding bullshit part 1:

What they say: “I’ve made 30% today”

What they mean: “I funded an account with £100. Bet it all on a trade and made £30 profit.”

The guide to understanding bullshit part 2:

What they say: “The level I called worked to the pip”

What they mean: “The other 6 levels I mentioned didn’t work but, if anyone mentions that, I can come up with a good reason I wouldn’t have traded at any of them”.

The Ten ‘DS’ Rules:

Learn to function in a tense, unstructured, and unpredictable environment.

Be an independent thinker versus a conventional thinker.

Work out a way to handle your emotions and maintain objectivity.

Don’t rely on hope and fear in the conventional sense.

Work continuously to improve yourself, giving importance to self-examination and recognizing that your personality and way of responding to events are a critical part of the game. This requires continuous coaching.

Modify your normal responses to certain events.

Be willing to face problems, understand them, and recognize that they are in some way related to your behavior.

Know when problems can be resolved and then apply methods to solve them. That may mean giving up some control in order to gain a different control. It may mean changes in your personality, learning self-reliance, or giving up independence and ego to become part of a trading team.

Understand the larger framework in which trading occurs—how the complexity of the marketplace and your personality both must be taken into account in order to develop the mastery of trading.

Develop the right mindset for trading—a willingness to commit to the kinds of changes in personal habits and beliefs that will drastically alter your life. To do this requires a willingness to surrender to the forces of the game. In order to be able to play at a maximum level, you have to let go of your ego and your need to have things your way.

Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of the homework; the other part is projective. What do I want to happen tomorrow? What happens if the opposite occurs? What happens if nothing happens? Think through all the ‘what-ifs.’ Anticipate, plan and react.

Trading psychology is much easier when we have a genuine "why" underlying our actions. Too many people are pursuing trading because they can't figure out another way to work independently and make enough money to support themselves. This is understandable, but invariably ends badly. People setting themselves up as gurus are all too willing to exploit the desire to make a living from trading. A great question to ask about any idea advanced by a guru is, "Why?" If you--and they--can't truly explain why an idea works, how do you know you actually have an edge and not just another pattern fit to market data?

I’ve said it before, and I’m going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to divorce my ego from the trade. Trading is a psychological game. Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring.

Every 3-4 months I get people who get so excited about trading by reading all these materials I post and they start thinking they wants to be next big trader but after few months they becomes silent and after year or two when I see their profile they are doing something else.

Market is the King, you should not come to market with the idea to beat it mentally, instead you should come to market go with flow mentality. It is tough. It can play with your life, mind and whatever you believes in and I bet, if you do not have a financial stability, you will gonna abuse yourself, your family and who knows even your God. When you read about all these successful traders and their rules etc. It feels really good and you start thinking you can be that guy too but you can't avoid that fact 95% of those people who come to market will fail. These are not Tom, dick and harry kind of people they are Doctors, engineers, Business people, Lawyers… so obviously they are intelligent there is no doubt about it, but they fail in market. Reading is important but getting experience in market is a whole new thing, every trader who has some success will tell you they went bankrupt or blown few accounts before seeing some success. At the end they started getting their own pattern as why they were losing money. They corrected it and now they are successful in market so you have to get that part of correcting your mistakes by yourself. I don't think any amount of material you read has anything to do with it.

Many traders take risks when they shouldn’t. They take on too much risk too easily by over sizing, risky bets, etc. They not only lose money but also tie up their time and money managing these trades, and the psychological price they pay is huge.

When the time comes to enter a trade – when the big opportunity shows up, they hesitate. They’ve been so frustrated with the poor performance of the previous trades they’re not able to pull the trigger when they really should.

The market is an opportunity-generating machine; we just have to wait for the right opportunity. Trading is as much a waiting game as it is anything else. Waiting for the opportunity and then waiting for the trade to work.

Price Charts are a reflection of Human Nature / Mass Psychology.The same market patterns will continue to be valid as long as Human Nature remains the same -in other words - FOREVER!

Technical structure with fundamental conviction is the name of the game…

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Blog authors

I retired from the U.S. Air Force after 25 years, and then spent 20 years in IT management. I have a B.S. from SUNY and graduate work in communications theory at the University of Oklahoma. I also studied networking and programming at SMU. I am a graduate of the Online Trading Academy.